Hong Kong Builders Set for Busiest Month in 6 Years on Rates

By Kelvin Wong -
Oct 3, 2012

Hong Kongdevelopers, seeking funds
to tap an expanding government land supply, are this month
preparing to sell the most homes in six years as expectations
for prolonged low interest rates fuel demand.

Real estate companies led by New World Development Co.,
this year’s best performer in Hong Kong’s benchmark property
gauge, may sell more than 3,300 units from eight new projects in
October, according to Buggle Lau, chief analyst at Midland
Holdings Ltd. (1200), the city’s biggest publicly traded realtor. That
would be the highest monthly figure since August 2006, Lau said.

Hong Kong Chief Executive Leung Chun Ying, who took over in
July, has expanded property curbs initiated by his predecessor,
including boosting home supply and raising mortgage downpayment
requirements, to rein in an asset bubble exacerbated by the U.S.
Federal Reserve’s third round of quantitative easing. Home
prices have surged almost 90 percent since early 2009 on a
shortage of new supply and an influx of mainland Chinese buyers.

“We have a combination of a red-hot market and a
government trying to make more units available to buyers
quicker,” said Wong Leung-sing, an associate director of
research at Centaline Property Agency Ltd., the city’s biggest
closely held realtor. “Of course, developers are rushing in.”

The value of property transactions in the city rose 1
percent in September from a month earlier to HK$54.7 billion
($7.1 billion), the highest since May, Centaline said in an e-
mailed statement today.

Best Performers

Property companies, the best performing sub-group in the
benchmark Hang Seng Index (HSI) this year, may have sold as many as
7,000 homes in the last quarter, bringing the year’s total to
more than 15,000 units for sales of HK$150 billion, Wong said.
That compares with about 9,100 units for HK$108 billion in 2011,
he said.

More than 2,500 units from The Reach, a joint project by
New World and billionaire Lee Shau-kee’s Henderson Land
Development Co., may go on sale this month, according to
Midland. Cheung Kong Holdings Ltd. (1), the developer controlled by
Li Ka-shing, Hong Kong’s richest man, will probably sell more
than 300 units from two new projects, the realtor said.

The Hang Seng Property Index (HSP), which tracks nine of the
biggest developers in Hong Kong including Cheung Kong and New
World, has risen 29 percent this year, compared with the 13
percent advance in the Hang Seng Index. The real estate gauge
gained 0.6 percent today.

New World

New World has led this year’s gain with 95 percent. The
builder, which accounts for about 7 percent of the new homes
sold in Hong Kong over the past year, is the only developer
assigned a “buy” (17) rating from Nicole Wong, an analyst at CLSA
Ltd. in Hong Kong.

“In a scenario of increasing land supply, developers with
the smaller market shares can benefit because they have more
chance to expand,” said CLSA’s Wong. “New World has a good
project pipeline.”

New World may sell more than 3,300 units for as much as
HK$22 billion by the end of next year, Chairman Henry Cheng said
last month.

Cheung Kong, which targets selling more than 4,000 units
for the whole year according to Executive Director Justin Chiu,
has risen 25 percent this year, while Sino Land, which sold the
most homes among developers, is up 30 percent. The two builders
have market shares of about 30 percent and 13 percent
respectively, Wong said.

More Supplies

Sun Hung Kai Properties Ltd. (16), whose co-chairmen are going
on trial for bribery-related charges this month, has risen 16
percent this year, the worst performance in the property index.

The developer, Hong Kong’s biggest by market value, plans
to begin offering homes in at least five projects in the next
six to nine months as it targets sales of about HK$28 billion
for the fiscal year ending June 2013, Deputy Managing Director
Victor Lui said last month.

The government expects developers to supply 65,000 private
units over the next three to four years and will make available
75,000 public housing units, Housing Secretary Anthony Cheung
said in August. That compares with about 40,000 private units
completed in the four years between 2008 and 2011 according to
the Transport and Housing Bureau.

Hong Kong’s home prices have now surpassed their peak in
October 1997, which marked the start of a 70 percent decline to
August 2003, according to the Centaline index. They have soared
240 percent since that trough nine years ago.